If you watch television, it is highly likely that you have seen the commercials for “FreeCreditReport.com” The commercials talk about how important it is to monitor your credit. When you are sitting in front of the television it is easy to ignore these commercials. When you are the victim of an identity theft, you start to wish you had paid more attention.

Beyond identity theft, which is horrible, there are other reasons to check your credit:

1. Your credit rating is important: You should always know your credit score before you apply for a loan or credit card. There are plenty of places that will take for granted that you do not know your credit score and will try to get you to agree on a higher interest rate because of your “poor credit.” Car dealerships are notorious for this. If you know your credit score ahead of time, you are harder to take advantage of.

2. Your credit history says a lot about you. When you want to apply for a mortgage or a large loan, financial institutions look at more than your credit score. They look at how much debt you have accumulated, what kind of payment history you have and whether you are financially responsible.

3. Mistakes. Most Americans have mistakes on their credit reports. Credit reporting agencies are notorious for making mistakes on people’s credit histories. What’s more, they will not correct a mistake unless you tell them to. Common mistakes are having accounts listed twice, a debt being listed as outstanding when you have paid it in full, and regular payments not being added to an account. These mistakes could be what make the difference in whether or not you are approved for a loan or a mortgage!

Each person is allowed to get one free credit report each year and the government has endorsed freecreditreport.com as the best company to use when you want to get your report. Make sure that you check your report at least once a year and that you go meticulously through it. Report any mistakes to the credit reporting agencies, and then follow up to make sure they get changed.

Your credit is how financial institutions judge you. You don’t want it to be wrong!

Credit card debt has become a real problem in our society. The slogan, “Get it now and pay later” is getting more people into credit card debt than ever before. Sure, we all want things now, but at what cost? Interest rates are increasing every day, as credit card companies are raising their rate, because of non-paying consumers. Not only do you, as a consumer, pay for increased interest rates, you also pay for:

• Late payments—if you are more than 30 days late, the fees can be quite high
• Charges exceeding the credit limit—even if you exceed it just a little, the interest rate can skyrocket
• Returned check fees or payment processing fees
• Cash advances and convenience checks
• Transactions in foreign currency
• Membership fees

These charges can add up quickly and before people know it, consumer credit is out of control and right now, it seems as if a pattern is quickly developing, which hurts both creditor and consumer. Credit card fraud is at an all time high, according to the Federal Trade Commission, which ends up costing the taxpayer and the credit card companies. Credit card fraud can damage someone’s credit report for many years; therefore, it is crucial that consumers protect themselves. There is a solution, however; a way to pay off your creditors, develop a budgeting plan that will keep you in control, and protect you from credit card fraud.

Consumer credit counseling can help you in all those areas and with any debt you have. They can help you:

• Devise a budgeting plan, first taking into account the money you are bringing in
  
• Sit down and work out a workable budget, with the #1 priority of paying off creditors, usually in one lump sum
• Teach you how to balance your checkbook
• Reconcile bills
• Curb excessive spending and
• Devise a savings plan

One of the great truisms of investing is the Cockroach Theory of surprises.  Like cockroaches, unpleasant surprises rarely show up alone.

Take the travails of Bear Stearns, one of the pillars of the Wall Street establishment.

At the beginning of the year, Bear Stearns was trading at over $80/share.

As the subprime mess took its toll, Bear Stearns drifted downwards, until last week’s news that JP Morgan had to bail it out caused the stock to drop to $30/share on Friday.

At that point, the inexperienced investor might say, “Looks like the situation is stabilized.  Maybe it’s a buying opportunity.  After all, it’s down over 50% from the beginning of the year.”

On the other hand, followers of the Cockroach Theory would avoid Bear like it was radioactive, assuming that there was worse to come.

And they were right.

Over the weekend, JPMorgan announced a plan to buy out Bear at $2 per share.  No, that’s not a misprint.  The stock is currently trading at $3.82, presumably because investors are betting that alternate bidders will step up to the plate.

As numerous folks have pointed out, Bear Stearns’ HQ is worth about $10 per share on its own, meaning that Bear Stearns’ business is valued at NEGATIVE $1 billion based on the buyout offer.

So when bad news leaks, and you’re tempted to go bargain hunting, remember the Cockroach Theory.  Otherwise you’re portfolio might end up in the dump with the real cockroaches.

I was reading a recent report by the Federal Reserve that stated that the total equity for homes in the U.S. was at its lowest point since 1945. As a matter of fact, the equity ratio is actually below 50% for the first time ever (they only have statistics back to 1945). What this means is that the American public for the first time owes more on their houses than the equity that is in their houses. Since 1945 we have been through multiple recessions and economic downturns, but this is a first.

A few other stats from the released report:

• 8.8 million homes (a little over 10%) have zero or negative equity
• Homeprices have fallen 8.9% in the last year
• If home prices fall another 20%, 13.9 million homes will have negative equity

These are dark times for the real estate market, and I do not believe we have hit the floor yet.

Asset allocation.

Finance experts generally agree that for most investors, the most important factor to consider in their investment strategy is not the latest earning reports, or whether or not a particular drug is going to pass its FDA trials, but rather the basic question of in which broad categories they should invest their money.

If you’re lucky enough to find the next Warren Buffett and invest in his company (a great financial tragedy in my own life is that a friend advised me to invest in Berkshire Hathaway in 1989…and I failed to do so), then great.  But the key word is “luck.”  How many investors have been dubbed “the next Warren Buffett” over the years, only to fall from favor.

Back when I was just coming out of school, the PBHG growth funds were considered the tops in the land…in less than a decade, they had changed their name and paid back $120 million to investors after a market-timing scandal.

And I won’t even get into the madness of trying to do your own stockpicking on a part-time basis.

The bottom line?  Figure out which broad categories to invest in, and then get out of the way.  The most important asset classes you should invest in are equities (stocks) and fixed-income (bonds).  Within equities, you should also diversify your holdings between domestic and international.  My personal foolproof allocation is 40% domestic equities, 40% international, and 10% fixed income, and 10% other (which gives me a little money to play with for my own enjoyment).

For the really ambitious, you can think about allocating between all the boxes on Morningstar’s stylebox (large/mid/small X value/blend/growth), but in my experience, the more you mess around, the less likely you’ll stick with your program.  Sure, you’ll sound pretty boring at cocktail parties, but you’ll be (silently) laughing all the way to the bank.